Suppose that Boeing Corporation exported a Boeing 747 to British Airways and billed 10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows: The U.S. interest rate: 6.10% per annum The U.K. interest rate: 9.00% per annum The spot exchange rate: $1.50/ The forward exchange rate: $1.46/ (1-year maturity)

1. Assume that Boeing sells a currency forward contract of 10 million for delivery in one year, in exchange for a given amount of U.S. dollar. Which of the following is all true? On the maturity date of the contract Boeing will

(i)- have to deliver 10 million to the bank (the counterparty of the contract) (ii)- take delivery of $14.6 million (iii)- have a zero net pound exposure (iv)- have a profit, or a loss, depending on the future changes in the exchange rate, from this British sale

A. (i) and (iv) B. (ii) and (iv) C. (ii), (iii), (iv) D. (i), (ii), (iii)

2. Suppose that on the maturity date of the forward contract, the spot rate turns out to be $1.40/ (i.e. less than the forward rate of $1.46/). How much did Boeing gain or lose by hedging on the forward contract?